IDS LIFE OF NEW YORK ACCOUNT 7, N-30B-2, 1999-04-30

IDS LIFE OF NEW YORK ACCOUNT 7
N-30B-2, 1999-04-30

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FOR USE IN NEW YORK ONLY

[LOGO]

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SMITH BARNEY LIFEVEST-SM-

- ------------------------------------------------
Annual Report for:
- - Single Premium Variable Life Insurance
Policy issued by IDS Life Insurance
Company of New York
Prospectus for:
- - Smith Barney Inc. Stripped ("Zero Coupon")
U.S. Treasury Securities Fund, Series A
- --------------------------------------------------------
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7

ANNUAL FINANCIAL INFORMATION
- -----------------------------------------------------------------

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
IDS Life Insurance Company of New York

We have audited the accompanying individual and combined statements of net
assets of the segregated asset subaccounts of IDS Life of New York Account 7 --
Single Premium Variable Life Insurance (comprised of subaccounts NAP, NMM, NHI,
NTR, NGO and N04) as of December 31, 1998, and the related statements of
operations and changes in net assets for each of the three years in the period
then ended. These financial statements are the responsibility of the management
of IDS Life Insurance Company of New York. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1998 with the affiliated mutual
fund manager and the unit investment trust sponsor. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the individual and combined financial position of the
segregated asset subaccounts of IDS Life of New York Account 7 -- Single Premium
Variable Life Insurance at December 31, 1998 and the individual and combined
results of their operations and the changes in their net assets for the periods
described above, in conformity with generally accepted accounting principles.

Ernst & Young LLP
Minneapolis, Minnesota
March 12, 1999

1
<PAGE>

<TABLE>
<CAPTION>
IDS LIFE OF NEW YORK ACCOUNT 7
- ----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS DEC. 31, 1998
SEGREGATED ASSET SUBACCOUNTS COMBINED
--------------------------------------------------------- VARIABLE
ASSETS NAP NMM NHI NTR NGO N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Investments in shares of mutual fund portfolios and units
in the trust:
at cost................................................... $ 648,800 $98,744 $155,814 $135,476 $12,157 $13,342 $1,064,333
---------------------------------------------------------------------
at market value........................................... $1,057,594 $98,740 $156,472 $170,797 $12,472 $33,155 $1,529,230
Dividends receivable....................................... -- 393 863 -- 53 -- 1,309
Receivable from mutual fund portfolios and the trust for
share redemptions.......................................... 1,617 -- -- 261 -- -- 1,878
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets 1,059,211 99,133 157,335 171,058 12,525 33,155 1,532,417
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------------------
Payable to IDS Life of New York for:
Mortality and expense risk fee............................. 539 50 80 86 7 17 779
Minimum death benefit guarantee risk charge................ 359 34 53 58 4 12 520
Issue and administrative expense charge.................... 270 25 40 44 3 9 391
Mortality charge........................................... 449 42 66 73 5 14 649
Transaction charge......................................... -- -- -- -- -- 7 7
Payable to mutual fund portfolios and the trust for
investments purchased...................................... -- 242 624 -- 34 -- 900
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities.......................................... 1,617 393 863 261 53 59 3,246
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Variable Life contracts in
accumulation period........................................ $1,057,594 $98,740 $156,472 $170,797 $12,472 $33,096 $1,529,171
- ----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATION UNITS OUTSTANDING............................. 220,618 70,527 103,394 52,556 6,700 12,449
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER ACCUMULATION UNIT...................... $ 4.79 $ 1.40 $ 1.51 $ 3.25 $ 1.86 $ 2.70
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS YEAR ENDED DEC. 31, 1998
SEGREGATED ASSET SUBACCOUNTS COMBINED
---------------------------------------------------- VARIABLE
INVESTMENT INCOME NAP NMM NHI NTR NGO N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Dividend income from mutual fund portfolios and in the
trust.................................................... $162,813 $4,806 $11,326 $13,057 $ 748 $ -- $192,750
- --------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charge........................ 5,997 583 931 961 73 193 8,738
Minimum death benefit guarantee risk charge.............. 3,998 389 621 641 48 129 5,826
Issue and administrative expense charge.................. 3,008 293 467 482 36 97 4,383
Mortality charge......................................... 5,007 487 778 803 61 161 7,297
Transaction charge....................................... -- -- -- -- -- 81 81
- --------------------------------------------------------------------------------------------------------------------------
Total expenses........................................... 18,010 1,752 2,797 2,887 218 661 26,325
- --------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net.......................... 144,803 3,054 8,529 10,170 530 (661) 166,425
- --------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
- --------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in mutual
fund portfolios and in the trust:
Proceeds from sales...................................... 32,893 -- 4,252 37,330 -- 659 75,134
Cost of investments sold................................. 20,013 -- 4,187 29,687 -- 280 54,167
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments.................. 12,880 -- 65 7,643 -- 379 20,967
Net change in unrealized appreciation or depreciation of
investments.............................................. (88,745) -- (3,136) 855 227 2,862 (87,937)
- --------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments........................... (75,865) -- (3,071) 8,498 227 3,241 (66,970)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................... $ 68,938 $3,054 $ 5,458 $18,668 $ 757 $ 2,580 $ 99,455
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>

3
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<TABLE>
<CAPTION>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS YEAR ENDED DEC. 31, 1997
SEGREGATED ASSET SUBACCOUNTS COMBINED
---------------------------------------------------- VARIABLE
INVESTMENT INCOME NAP NMM NHI NTR NGO N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Dividend income from mutual fund portfolios and in the
trust..................................................... $ 38,768 $4,683 $11,034 $15,582 $ 1,367 $ -- $71,434
- --------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk charge......................... 7,486 696 950 1,177 149 237 10,695
Minimum death benefit guarantee risk charge............... 3,758 346 632 586 72 158 5,552
Issue and administrative expense charge................... 3,085 285 533 481 60 136 4,580
Distribution charge....................................... 784 75 175 121 17 53 1,225
Mortality charge.......................................... 4,691 432 789 732 90 197 6,931
Premium tax charge........................................ 272 26 60 42 6 18 424
Transaction charge........................................ -- -- -- -- -- 99 99
- --------------------------------------------------------------------------------------------------------------------------
Total expenses............................................ 20,076 1,860 3,139 3,139 394 898 29,506
- --------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net........................... 18,692 2,823 7,895 12,443 973 (898) 41,928
- --------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
- --------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in mutual
fund portfolios and in the trust:
Proceeds from sales....................................... 196,635 -- 41,833 19,018 11,291 13,954 282,731
Cost of investments sold.................................. 101,199 -- 41,601 14,864 11,373 6,504 175,541
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments................... 95,436 -- 232 4,154 (82) 7,450 107,190
Net change in unrealized appreciation or depreciation of
investments............................................... 67,292 -- 274 6,230 265 (4,302) 69,759
- --------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments............................ 162,728 -- 506 10,384 183 3,148 176,949
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations................................................ $181,420 $2,823 $ 8,401 $22,827 $ 1,156 $ 2,250 $218,877
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
IDS LIFE OF NEW YORK ACCOUNT 7
- --------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS YEAR ENDED DEC. 31, 1996
SEGREGATED ASSET SUBACCOUNTS COMBINED
---------------------------------------------------- VARIABLE
INVESTMENT INCOME NAP NMM NHI NTR NGO N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Dividend income from mutual fund portfolios and in the
trust.................................................... $149,047 $ 7,233 $12,955 $10,422 $ 2,286 $ -- $181,943
- --------------------------------------------------------------------------------------------------------------------------
Expenses:
Mortality and expense risk fee........................... 7,238 1,184 1,461 1,042 246 236 11,407
Minimum death benefit guarantee risk charge.............. 3,473 546 720 514 137 157 5,547
Issue and administrative expense charge.................. 3,473 546 720 514 137 157 5,547
Distribution expense charge.............................. 2,595 408 538 384 102 118 4,145
Mortality charge......................................... 4,332 681 898 641 171 197 6,920
Premium tax charge....................................... 878 138 182 130 35 39 1,402
Transaction charge....................................... -- -- -- -- -- 98 98
- --------------------------------------------------------------------------------------------------------------------------
Total expenses........................................... 21,989 3,503 4,519 3,225 828 1,002 35,066
- --------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net.......................... 127,058 3,730 8,436 7,197 1,458 (1,002) 146,877
- --------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS -- NET
- --------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on sales of investments in mutual
fund portfolios and in the trust:
Proceeds from sales...................................... 73,792 88,028 44,981 -- 64,950 1,007 272,758
Cost of investments sold................................. 38,652 88,031 43,851 -- 65,167 296 235,997
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments.................. 35,140 (3) 1,130 -- (217) 711 36,761
Net change in unrealized appreciation or depreciation of
investments.............................................. (16,941) 2 (7,659) 8,548 (4,056) (292) (20,398)
- --------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments........................... 18,199 (1) (6,529) 8,548 (4,273) 419 16,363
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................... $145,257 $ 3,729 $ 1,907 $15,745 $(2,815) $ (583) $163,240
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>

5
<PAGE>

CONTRACT TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net transfers*........................................... -- -- 598 497 -- -- 1,095
Transfers for policy loans............................... (13,097) -- (1,809) -- -- -- (14,906)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions........... (13,097) -- (1,211) 497 -- -- (13,811)
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year.......................... 1,001,753 95,686 152,225 151,632 11,715 30,516 1,443,527
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year................................ $1,057,594 $98,740 $156,472 $170,797 $ 12,472 $ 33,096 $1,529,171
- -----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT ACTIVITY
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year................... 223,878 70,527 104,605 52,556 6,700 12,449
Transfers for policy loans............................... (3,260) -- (1,211) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year......................... 220,618 70,527 103,394 52,556 6,700 12,449
- -----------------------------------------------------------------------------------------------------------------------------------
*Includes transfer activity from (to) other subaccounts and transfers from (to) IDS Life of New York's fixed account.
See accompanying notes to financial statements.
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
IDS LIFE OF NEW YORK ACCOUNT 7
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DEC. 31, 1997
SEGREGATED ASSET SUBACCOUNTS COMBINED
----------------------------------------------------------- VARIABLE
OPERATIONS NAP NMM NHI NTR NGO N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net.......................... $ 18,692 $ 2,823 $ 7,895 $ 12,443 $ 973 $ (898) $ 41,928
Net realized gain (loss) on investments.................. 95,436 -- 232 4,154 (82) 7,450 107,190
Net change in unrealized appreciation or depreciation of
investments.............................................. 67,292 -- 274 6,230 265 (4,302) 69,759
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................... 181,420 2,823 8,401 22,827 1,156 2,250 218,877
- -----------------------------------------------------------------------------------------------------------------------------------
CONTRACT TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net transfers*........................................... 11,561 -- (10,324) -- -- -- 1,237
Transfers for policy loans............................... (52,748) -- 7,464 (607) -- -- (45,891)
Contract terminations:
Surrender benefits....................................... (61,355) -- (8,339) (18,371) (11,291) (12,971) (112,327)
Death benefits........................................... (59,912) -- (15,207) -- -- -- (75,119)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions........... (162,454) -- (26,406) (18,978) (11,291) (12,971) (232,100)
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year.......................... 982,787 92,863 170,230 147,783 21,850 41,237 1,456,750
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year................................ $1,001,753 $95,686 $152,225 $151,632 $ 11,715 $ 30,516 $1,443,527
- -----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT ACTIVITY
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year................... 260,415 70,527 123,932 59,059 13,304 17,938
Net transfers*........................................... 3,094 -- (7,568) -- -- --
Transfers for policy loans............................... (12,562) -- 5,533 (220) -- --
Contract termination:
Surrender benefits....................................... (14,071) -- (5,997) (6,283) (6,604) (5,489)
Death benefits........................................... (12,998) -- (11,295) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year......................... 223,878 70,527 104,605 52,556 6,700 12,449
- -----------------------------------------------------------------------------------------------------------------------------------
*Includes transfer activity from (to) other subaccounts and transfers from (to) IDS Life of New York's fixed account.
See accompanying notes to financial statements.
</TABLE>

7
<PAGE>

<TABLE>
<CAPTION>
IDS LIFE OF NEW YORK ACCOUNT 7
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS YEAR ENDED DEC. 31, 1996
SEGREGATED ASSET SUBACCOUNTS COMBINED
--------------------------------------------------------- VARIABLE
OPERATIONS NAP NMM NHI NTR NGO N04 ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income (loss) -- net.......................... $127,058 $ 3,730 $ 8,436 $ 7,197 $ 1,458 $(1,002) $ 146,877
Net realized gain (loss) on investments.................. 35,140 (3) 1,130 -- (217) 711 36,761
Net change in unrealized appreciation or depreciation of
investments.............................................. (16,941) 2 (7,659) 8,548 (4,056) (292) (20,398)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................... 145,257 3,729 1,907 15,745 (2,815) (583) 163,240
- ---------------------------------------------------------------------------------------------------------------------------------
CONTRACT TRANSACTIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Net transfers*........................................... -- 64,949 (4,516) 2,267 (62,691) -- 9
Transfers for policy loans............................... (45,449) -- (2,055) -- -- -- (47,504)
Contract terminations:
Surrender benefits....................................... -- (88,028) (38,409) -- -- -- (126,437)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from contract transactions........... (45,449) (23,079) (44,980) 2,267 (62,691) -- (173,932)
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year.......................... 882,979 112,213 213,303 129,771 87,356 41,820 1,467,442
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year................................ $982,787 $ 92,863 $170,230 $147,783 $ 21,850 $41,237 $1,456,750
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATION UNIT ACTIVITY
- ---------------------------------------------------------------------------------------------------------------------------------
Units outstanding at beginning of year................... 274,198 87,438 157,173 58,036 52,748 17,938
Net transfers*........................................... -- 50,324 (3,572) 1,023 (39,444) --
Transfers for policy loans............................... (13,783) -- (1,508) -- -- --
Contract termination:
Surrender benefits....................................... -- (67,235) (28,161) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Units outstanding at end of year 260,415 70,527 123,932 59,059 13,304 17,938
- ---------------------------------------------------------------------------------------------------------------------------------
*Includes transfer activity from (to) other subaccounts and transfers from (to) IDS Life of New York's fixed account.
See accompanying notes to financial statements.
</TABLE>

8
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IDS LIFE OF NEW YORK ACCOUNT 7

NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------
1. ORGANIZATION

IDS Life of New York Account 7 (the Variable Account) was established under New
York law on Sept. 12, 1985 as a segregated asset account of IDS Life Insurance
Company of New York (IDS Life of New York). The Variable Account is registered
as a single unit investment trust under the Investment Company Act of 1940, as
amended (the 1940 Act). Operations of the Variable Account commenced on April
15, 1987.

The Variable Account is comprised of various subaccounts. Each subaccount
invests exclusively in shares of one of the following portfolios (the Funds) of
IDS Life Series Fund, Inc. (IDS Life Series Fund) or in the Trust. IDS Life
Series Fund is registered under the 1940 Act as a diversified, open-end
investment management investment company. The Trust is registered under the 1940
Act as a unit investment trust. The Funds have the following investment managers
and the Trust has the following sponsor.

<TABLE>
<CAPTION>
SUBACCOUNT INVESTS EXCLUSIVELY IN SHARES OF INVESTMENT MANAGER/SPONSOR
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
NAP IDS Life Series Fund Equity Portfolio................... IDS Life Insurance Company(1)
NMM IDS Life Series Fund Money Market Portfolio............. IDS Life Insurance Company(1)
NHI IDS Life Series Fund Income Portfolio................... IDS Life Insurance Company(1)
NTR IDS Life Series Fund Managed Portfolio.................. IDS Life Insurance Company(1)
NGO IDS Life Series Fund Government Securities Portfolio.... IDS Life Insurance Company(1)
N04 2004 Trust.............................................. Smith Barney Inc.
- -----------------------------------------------------------------------------------------------------
</TABLE>

(1) American Express Financial Corporation (AEFC) is the investment advisor.

The assets of each subaccount of the Variable Account are not chargeable with
liabilities arising out of the business conducted by any other segregated asset
account or by IDS Life of New York.

- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS IN THE FUNDS
Investments in shares of the Funds are stated at market value which is the net
asset value per share as determined by the respective Funds. Investment
transactions are accounted for on the date the shares are purchased and sold.
The cost of investments sold and redeemed is determined on the average cost
method. Dividend distributions received from the Funds are reinvested in
additional shares of the Funds and recorded as income by the subaccounts on the
ex-dividend date.

Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.

INVESTMENTS IN THE TRUST
Investments in units of the Trust are stated at market value which is the net
asset value per unit as determined by the Trust. Investment transactions are
accounted for on the date the units are purchased and sold. The cost of
investments sold and redeemed is determined on the average cost method.

Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccount's share of the Trust's
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that

9
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.

FEDERAL INCOME TAXES
IDS Life of New York is taxed as a life insurance company. The Variable Account
is treated as part of IDS Life of New York for federal income tax purposes.
Under existing federal income tax law, IDS Life of New York is not subject to
income taxes with respect to any investment income of the Variable Account.

- --------------------------------------------------------------------------------
3. MORTALITY CHARGE

IDS Life of New York deducts a mortality charge equal (except as explained
below), on an annual basis, to 0.5% of the daily net asset value of the Variable
Account. Prior to the maturity date of the policy, the death benefit will always
be higher than the policy value. This deduction will enable IDS Life of New York
to pay this additional amount. Although IDS Life of New York does not expect to
charge more than the rate mentioned above, its charge for providing life
insurance protection could be greater. IDS Life of New York guarantees that its
charge will never be greater than an amount based upon the 1958 Commissioners'
Standard Ordinary Mortality Table.

- --------------------------------------------------------------------------------
4. MORTALITY AND EXPENSE RISK CHARGE

IDS Life of New York makes contractual assurances to the Variable Account that
possible future adverse changes in administrative expenses and mortality
experience of the policy owners and beneficiaries will not affect the Variable
Account. The mortality and expense risk fee paid to IDS Life of New York is
computed daily and is equal, on an annual basis, to 0.6% of the daily net asset
value of the Variable Account.

- --------------------------------------------------------------------------------
5. MINIMUM DEATH BENEFIT GUARANTEE RISK CHARGE

IDS Life of New York deducts a minimum death benefit guarantee risk charge
equal, on an annual basis, to 0.4% of the daily net asset value of the Variable
Account. This deduction is made to compensate IDS Life of New York for the risk
it assumes by providing a guaranteed minimum death benefit. The deduction is
made from the Variable Account and computed on a daily basis. This charge is
guaranteed for the life of the contract and may not be increased.

- --------------------------------------------------------------------------------
6. ISSUE AND ADMINISTRATIVE EXPENSE CHARGE

IDS Life of New York deducts a charge to compensate it for expenses it incurs in
administering the policy, such as the costs of underwriting the policy,
conducting any medical examinations, establishing and maintaining records, and
providing reports to policy owners. This charge is deducted daily and is
equivalent, on an annual basis, to 0.4% of the daily net asset value of the
Variable Account during the first 10 years of the policy, and to 0.3%
thereafter. This charge was reduced to 0.3% for all policy owners in 1997. There
is not necessarily a relationship between the amount of the charge imposed on a
particular policy and the amount of administrative expenses that may be
attributable to that policy.

10
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

7. PREMIUM TAX CHARGE

To cover the premium taxes assessed by the state of New York and to compensate
IDS Life of New York for the average premium tax expense it incurred when
issuing the policy, IDS Life of New York deducted a charge equivalent, on an
annual basis, to 0.1% of the daily net asset value of the Variable Account
during the first 10 policy years. This charge was eliminated for all policy
owners in 1997.

- --------------------------------------------------------------------------------
8. DISTRIBUTION EXPENSE CHARGE

IDS Life of New York incurred certain sales and other distribution expenses at
the time the policies were issued. This charge was equal, on an annual basis, to
0.3% of the daily average net asset value of the Variable Account for the first
10 policy years. This charge was eliminated for all policy owners in 1997. IDS
Life of New York anticipates that this charge, together with any applicable
surrender charge, will cover the expected costs of distributing the policies. In
no event will the sum of the surrender charge deducted on surrender and
cumulative distribution expense charges previously deducted exceed 9% of the
single premium paid.

- --------------------------------------------------------------------------------
9. TRANSACTION CHARGE

IDS Life of New York makes a daily charge against the assets of each subaccount
investing in the Trust. This charge is intended to reimburse IDS Life of New
York for the transaction charge paid directly by IDS Life of New York to Smith
Barney Inc. on the sale of the Trust units to the Variable Account. IDS Life of
New York pays these amounts from its general account assets. The amount of the
asset charge is equivalent to an effective annual rate of 0.25% of the account
value invested in the Trust. This amount may be increased in the future but in
no event will it exceed an effective annual rate of 0.5% of the Variable Account
value. The charge will be cost-based (taking into account a loss of interest)
with no anticipated element of profit for IDS Life of New York.

- --------------------------------------------------------------------------------
10. SURRENDER CHARGE

IDS Life of New York will use a surrender charge to help it recover certain
selling expenses. The surrender charge will be deducted during the first eight
policy years. Further, IDS Life of New York guarantees that the total cumulative
distribution expense charges and the surrender charge will never exceed 9% of
the single premium. Charges by IDS Life of New York for surrenders are not
identified on an individual segregated asset account basis. Charges for all
segregated asset accounts amounted to $886,431 in 1998, $688,445 in 1997 and
$551,374 in 1996. Such charges are not treated as a separate expense of the
subaccounts or Variable Account. They are ultimately deducted from contract
surrender benefits paid by IDS Life of New York.

11
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

11. INVESTMENT IN SHARES/UNITS

The subaccounts' investment in shares of the Funds or units of the Trust as of
Dec. 31, 1998 were as follows:

<TABLE>
<CAPTION>
SUBACCOUNT INVESTMENT SHARES/UNITS NAV
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
NAP IDS Life Series Fund Equity Portfolio........................ 38,404 $ 27.54
NMM IDS Life Series Fund Money Market Portfolio.................. 98,750 1.00
NHI IDS Life Series Fund Income Portfolio........................ 15,603 10.03
NTR IDS Life Series Fund Managed Portfolio....................... 8,943 19.10
NGO IDS Life Series Fund Government Securities Portfolio......... 1,203 10.37
N04 2004 Trust................................................... 43,828 0.76
- --------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
12. INVESTMENT TRANSACTIONS

The subaccounts' purchases of Fund shares or Trust units, including reinvestment
of dividend distributions, were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
---------------------------
SUBACCOUNT INVESTMENT 1998 1997 1996
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
NAP IDS Life Series Fund Equity Portfolio....................... $161,504 $52,171 $155,918
NMM IDS Life Series Fund Money Market Portfolio................. 3,054 2,824 68,679
NHI IDS Life Series Fund Income Portfolio....................... 11,770 23,122 8,436
NTR IDS Life Series Fund Managed Portfolio...................... 47,577 12,337 9,550
NGO IDS Life Series Fund Government Securities Portfolio........ 530 973 3,716
N04 2004 Trust.................................................. -- 65 --
- ----------------------------------------------------------------------------------------------
Combined Variable Account $224,435 $91,492 $246,299
- ----------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
13. YEAR 2000 ISSUE (UNAUDITED)

The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of IDS Life of New York and
the Variable Account. IDS Life of New York and the Variable Account have no
computer systems of their own but are dependent upon the systems of AEFC and
certain other third parties.

A comprehensive review of AEFC's computer systems and business processes has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve any potential problems including
modification to existing software and the purchase of new software. These
measures are scheduled to be completed and tested on a timely basis. AEFC's
target date for substantially completing corrective measures on business
critical systems was Dec. 31, 1998. Substantial testing of these systems was
targeted for completion early in 1999. AEFC is currently on track with this
schedule and is also on track to finish the work on non-critical systems by June
30, 1999. The Year 2000 readiness of other third parties whose system failures
could have an impact on IDS Life of New York's and the Variable Account's
operations continues to be evaluated. The potential materiality of any such
impact is not known at this time.

AEFC's Year 2000 project includes establishing Year 2000 contingency plans for
all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. These plans are being amended to include specific Year 2000
considerations and will continue to be refined throughout 1999 as additional
information related to potential Year 2000 exposure is gathered.

12
<PAGE>
IDS LIFE OF NEW YORK ACCOUNT 7

CONDENSED FINANCIAL INFORMATION (UNAUDITED)
- -----------------------------------------------------------------
The following table gives per-unit information about the financial history of
each subaccount.

<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT NAP (INVESTING IN SHARES OF IDS LIFE SERIES FUND
EQUITY PORTFOLIO)
Accumulation unit value at beginning of period............ $4.48 $3.77 $3.22 $2.38 $2.37 $2.14 $2.08 $1.28 $1.31 $1.02
Accumulation unit value at end of period.................. $4.79 $4.48 $3.77 $3.22 $2.38 $2.37 $2.14 $2.08 $1.28 $1.31
Number of accumulation units outstanding at end of period
(000 omitted)............................................. 221 224 260 274 268 325 317 307 362 395
- --------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT NMM (INVESTING IN SHARES OF IDS LIFE SERIES FUND
MONEY MARKET PORTFOLIO)
Accumulation unit value at beginning of period............ $1.36 $1.32 $1.28 $1.25 $1.23 $1.23 $1.21 $1.18 $1.12 $1.06
Accumulation unit value at end of period.................. $1.40 $1.36 $1.32 $1.28 $1.25 $1.23 $1.23 $1.21 $1.18 $1.12
Number of accumulation units outstanding at end of period
(000 omitted)............................................. 71 71 71 87 217 165 165 247 219 243
- --------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT NHI (INVESTING IN SHARES OF IDS LIFE SERIES FUND
INCOME PORTFOLIO)
Accumulation unit value at beginning of period............ $1.46 $1.38 $1.36 $1.15 $1.23 $1.10 $1.02 $0.90 $1.12 $1.16
Accumulation unit value at end of period.................. $1.51 $1.46 $1.38 $1.36 $1.15 $1.23 $1.10 $1.02 $0.90 $1.12
Number of accumulation units outstanding at end of period
(000 omitted)............................................. 103 105 124 157 293 326 358 358 148 610
- --------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT NTR (INVESTING IN SHARES OF IDS LIFE SERIES FUND
MANAGED PORTFOLIO)
Accumulation unit value at beginning of period............ $2.89 $2.50 $2.24 $1.92 $1.95 $1.67 $1.55 $1.20 $1.21 $1.06
Accumulation unit value at end of period.................. $3.25 $2.89 $2.50 $2.24 $1.92 $1.95 $1.67 $1.55 $1.20 $1.21
Number of accumulation units outstanding at end of period
(000 omitted)............................................. 53 53 59 58 78 127 144 109 94 145
- --------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT NGO (INVESTING IN SHARES OF IDS LIFE SERIES FUND
GOVERNMENT SECURITIES PORTFOLIO)
Accumulation unit value at beginning of period............ $1.75 $1.64 $1.66 $1.44 $1.54 $1.41 $1.35 $1.19 $1.13 $1.05
Accumulation unit value at end of period.................. $1.86 $1.75 $1.64 $1.66 $1.44 $1.54 $1.41 $1.35 $1.19 $1.13
Number of accumulation units outstanding at end of period
(000 omitted)............................................. 7 7 13 53 20 20 28 65 50 10
- --------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT N04 (INVESTING IN SHARES OF 2004 TRUST)
Accumulation unit value at beginning of period............ $2.45 $2.25 $2.33 $1.82 $2.06 $1.74 $1.63 $1.38 $1.36 $1.13
Accumulation unit value at end of period.................. $2.70 $2.45 $2.25 $2.33 $1.82 $2.06 $1.74 $1.63 $1.38 $1.36
Number of accumulation units outstanding at end of period
(000 omitted)............................................. 12 12 18 18 18 36 36 36 12 12
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

13
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)
IDS LIFE OF NEW YORK FINANCIAL INFORMATION
- -----------------------------------------------------------------

The financial statements shown below are those of the insurance company and not
those of any other entity. They are included for the purpose of informing the
investor as to the financial condition of the insurance company and its ability
to carry out its obligations under its variable contracts.

IDS LIFE INSURANCE COMPANY OF NEW YORK
- -----------------------------------------------------------------

<TABLE>
<CAPTION>
BALANCE SHEETS DEC. 31, 1998 DEC. 31, 1997
ASSETS (thousands)
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value: 1998, $503,909;
1997, $562,979).................................................. $ 473,592 $ 535,651
Available for sale, at fair value (amortized cost: 1998,
$561,325; 1997, $582,962)........................................ 578,591 603,576
Mortgage loans on real estate.................................... 166,835 178,826
Policy loans..................................................... 25,421 23,349
Other investments................................................ 566 970
- -------------------------------------------------------------------------------------------------
Total investments................................................ 1,245,005 1,342,372
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents........................................ 3,007 --
Amounts recoverable from reinsurers.............................. 4,077 2,317
Accounts receivable.............................................. 842 723
Premiums due..................................................... 204 192
Accrued investment income........................................ 19,893 20,205
Deferred policy acquisition costs................................ 129,477 126,614
Other assets..................................................... 1,042 995
Separate account assets.......................................... 1,491,679 1,236,759
- -------------------------------------------------------------------------------------------------
Total assets..................................................... $ 2,895,226 $ 2,730,177
- -------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Liabilities:
Future policy benefits:
Fixed annuities.................................................. $ 875,507 $ 964,483
Universal life-type insurance.................................... 152,195 147,744
Traditional life, disability income and long-term care
insurance........................................................ 55,910 50,469
Policy claims and other policyholders' funds..................... 3,105 4,013
Deferred income taxes............................................ 7,912 11,445
Amounts due to brokers........................................... 4,507 29,054
Other liabilities................................................ 24,945 28,931
Separate account liabilities..................................... 1,491,679 1,236,759
- -------------------------------------------------------------------------------------------------
Total liabilities................................................ 2,615,760 2,472,898
- -------------------------------------------------------------------------------------------------
Stockholder's equity:
Capital stock, $10 par value per share; 200,000 shares
authorized, issued and outstanding............................... 2,000 2,000
Additional paid-in capital....................................... 49,000 49,000
Accumulated other comprehensive income:
Net unrealized securities gains.................................. 11,014 13,175
Retained earnings................................................ 217,452 193,104
- -------------------------------------------------------------------------------------------------
Total stockholder's equity....................................... 279,466 257,279
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity....................... $ 2,895,226 $ 2,730,177
- -------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

F-1
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DEC. 31,
1998 1997 1996
STATEMENTS OF INCOME (thousands)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Revenues:
Traditional life, disability income and long-term care insurance
premiums......................................................... $ 13,852 $ 12,376 $ 10,931
Policyholder and contractholder charges.......................... 20,467 18,319 15,832
Mortality and expense risk fees.................................. 13,980 11,312 8,574
Net investment income............................................ 100,871 106,274 109,468
Net realized gains (losses) on investments....................... 2,163 547 (1,424)
- --------------------------------------------------------------------------------------------------------
Total revenues................................................... 151,333 148,828 143,381
- --------------------------------------------------------------------------------------------------------
Benefits and expenses:
Death and other benefits: Traditional life, disability income and
long-term care insurance......................................... 5,553 3,633 4,182
Universal life-type insurance and investment contracts........... 4,320 3,852 4,409
Increase in liabilities for future policy benefits for
traditional life, disability income and long-term care
insurance........................................................ 3,662 3,979 2,324
Interest credited on universal life-type insurance and investment
contracts........................................................ 55,073 62,294 65,099
Amortization of deferred policy acquisition costs................ 18,362 17,201 16,071
Other insurance and operating expenses........................... 8,917 10,220 8,972
- --------------------------------------------------------------------------------------------------------
Total benefits and expenses...................................... 95,887 101,179 101,057
- --------------------------------------------------------------------------------------------------------
Income before income taxes....................................... 55,446 47,649 42,324
Income taxes..................................................... 19,098 16,471 14,640
- --------------------------------------------------------------------------------------------------------
Net income....................................................... $ 36,348 $ 31,178 $ 27,684
- --------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

F-2
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
THREE YEARS ENDED DEC. 31, 1998
(thousands) ACCUMULATED
OTHER
TOTAL COMPREHENSIVE
STOCKHOLDER'S CAPITAL INCOME, RETAINED
STATEMENTS OF STOCKHOLDER'S EQUITY EQUITY STOCK ADDITIONAL NET OF TAX EARNINGS
PAID-IN
CAPITAL
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31, 1995.................................... $218,583 $2,000 $49,000 $ 15,341 $152,242
Comprehensive income:
Net income............................................ 27,684 -- -- -- 27,684
Unrealized holding losses arising during the year, net
of effect on deferred policy acquisition costs of $296
and taxes of $5,055................................... (9,387) -- -- (9,387) --
Reclassification adjustment for losses included in net
income, net of tax of $(530).......................... 983 -- -- 983 --
------------- -------------
Other comprehensive loss.................................. (8,404) -- -- (8,404) --
-------------
Comprehensive income...................................... 19,280
Cash dividends to parent.................................. (8,000) -- -- -- (8,000)
----------------------------------------------------------------
Balance, Dec. 31, 1996.................................... 229,863 2,000 49,000 6,937 171,926
Comprehensive income:
Net income............................................ 31,178 -- -- -- 31,178
Unrealized holding gains arising during the year, net
of effect on deferred policy acquisition costs of $(1)
and taxes of $(3,412)................................. 6,337 -- -- 6,337 --
Reclassification adjustment for gains included in net
income, net of tax of $54............................. (99) -- -- (99) --
------------- -------------
Other comprehensive income................................ 6,238 -- -- 6,238 --
-------------
Comprehensive income...................................... 37,416
Cash dividends to parent.................................. (10,000) -- -- -- (10,000)
----------------------------------------------------------------
Balance, Dec. 31, 1997.................................... 257,279 2,000 49,000 13,175 193,104
Comprehensive income:
Net income............................................ 36,348 -- -- -- 36,348
Unrealized holding losses arising during the year, net
of effect on deferred policy acquisition costs of $22
and taxes of $1,415................................... (2,628) -- -- (2,628) --
Reclassification adjustment for gains included in net
income, net of tax of $(252).......................... 467 -- -- 467 --
------------- -------------
Other comprehensive loss.................................. (2,161) -- -- (2,161) --
-------------
Comprehensive income...................................... 34,187
Cash dividends to parent.................................. (12,000) -- -- -- (12,000)
----------------------------------------------------------------
Balance, Dec. 31, 1998.................................... $279,466 $2,000 $49,000 $ 11,014 $217,452
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

F-3
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DEC. 31,
1998 1997 1996
STATEMENTS OF CASH FLOWS (thousands)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 36,348 $ 31,178 $ 27,684
Adjustments to reconcile net income to net cash provided by
operating activities:
Policy loan issuance, excluding universal life-type insurance.... (3,110) (3,073) (2,473)
Policy loan repayment, excluding universal life-type insurance... 2,660 1,897 1,571
Change in accrued investment income.............................. 312 863 1,504
Change in amounts recoverable from reinsurer..................... (1,760) (1,345) (460)
Change in premiums due........................................... (12) (50) 25
Change in accounts receivable.................................... (119) 218 (83)
Change in other assets........................................... (47) (95) (328)
Change in deferred policy acquisition costs, net................. (2,841) (7,431) (9,087)
Change in liabilities for future policy benefits for traditional
life, disability income and long-term care insurance............. 5,441 5,131 2,861
Change in policy claims and other policyholders' funds........... (908) 858 (489)
Deferred income tax benefit...................................... (2,369) (960) (2,095)
Change in other liabilities...................................... (3,986) 3,468 4,434
Accretion of discount, net....................................... (342) (352) (652)
Net realized (gain) loss on investments.......................... (2,163) (547) 1,424
Policyholder and contractholder charges, non-cash................ (9,661) (8,772) (7,831)
Other, net....................................................... 118 715 (935)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities........................ 17,561 21,703 15,070
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed maturities held to maturity:
Maturities, sinking fund payments and calls...................... 46,629 36,511 39,082
Sales............................................................ 16,173 12,616 14,465
Fixed maturities available for sale:
Purchases........................................................ (86,072) (101,818) (97,370)
Maturities, sinking fund payments and calls...................... 96,578 84,229 71,939
Sales............................................................ 13,180 27,055 15,669
Other investments, excluding policy loans:
Purchases........................................................ (9,121) (33,243) (14,802)
Sales............................................................ 21,113 14,233 12,659
Change in amounts due from broker................................ -- 995 --
Change in amounts due to broker.................................. (24,547) 26,047 (6,993)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by investing activities........................ 73,933 66,625 34,649
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Activity related to universal life-type insurance and investment
contracts:
Considerations received.......................................... 76,009 112,732 131,011
Surrenders and death benefits.................................... (205,946) (251,259) (236,689)
Interest credited to account balances............................ 55,073 62,294 65,099
Universal life-type insurance policy loans:
Issuance......................................................... (5,222) (4,848) (4,490)
Repayment........................................................ 3,599 2,753 3,350
Cash dividend to parent.......................................... (12,000) (10,000) (8,000)
- ---------------------------------------------------------------------------------------------------------
Net cash used in financing activities............................ (88,487) (88,328) (49,719)
- ---------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents........................ 3,007 -- --
Cash and cash equivalents at beginning of year................... -- -- --
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year......................... $ 3,007 $ -- $ --
- ---------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

F-4
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS)
- -----------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS
IDS Life Insurance Company of New York (the Company) is engaged in the insurance
and annuity business in the state of New York. The Company's principal products
are deferred annuities and universal life insurance which are issued primarily
to individuals. It offers single premium and flexible premium deferred annuities
on both a fixed and variable dollar basis. Immediate annuities are offered as
well. The Company's insurance products include universal life (fixed and
variable), whole life, single premium life and term products (including waiver
of premium and accidental death benefits). The Company also markets disability
income and long-term care insurance.

BASIS OF PRESENTATION
The Company is a wholly owned subsidiary of IDS Life Insurance Company (IDS
Life), which is a wholly owned subsidiary of American Express Financial
Corporation (AEFC), which is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which vary in certain respects
from reporting practices prescribed or permitted by the New York Department of
Insurance as reconciled in Note 11.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

INVESTMENTS
Fixed maturities that the Company has both the positive intent and the ability
to hold to maturity are classified as held to maturity and carried at amortized
cost. All other fixed maturities and all marketable equity securities are
classified as available for sale and carried at fair value. Unrealized gains and
losses on securities classified as available for sale are reported as a separate
component of accumulated other comprehensive income, net of deferred policy
acquisition costs and deferred income taxes.

Realized investment gains or losses are determined on an identified cost basis.

Prepayments are anticipated on certain investments in mortgage-backed securities
in determining the constant effective yield used to recognize interest income.
Prepayment estimates are based on information received from brokers who deal in
mortgage-backed securities.

Mortgage loans on real estate are carried at amortized cost less reserves for
mortgage loan losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities.

F-5
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of mortgage loans is measured as the excess of the loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in an allowance for
mortgage loan losses. The allowance for mortgage loan losses is maintained at a
level that management believes is adequate to absorb estimated losses in the
portfolio. The level of the allowance account is determined based on several
factors, including historical experience, expected future principal and interest
payments, estimated collateral values, and current and anticipated economic and
political conditions. Management regularly evaluates the adequacy of the
allowance for mortgage loan losses.

The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on management's
judgment as to the ultimate collectibility of principal, interest payments
received are either recognized as income or applied to the recorded investment
in the loan.

The cost of interest rate caps is amortized to investment income over the life
of the contracts and payments received as a result of these agreements are
recorded as investment income when realized. The amortized cost of interest rate
caps is included in other investments.

Policy loans are carried at the aggregate of the unpaid loan balances which do
not exceed the cash surrender values of the related policies.

When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such investments
are written down to the fair value by a charge to income.

STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost which approximates fair value.

Supplementary information to the statements of cash flows for the years ended
December 31 is summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------
CASH PAID DURING THE YEAR FOR:
Income taxes....................... $22,470 $17,811 $15,247
Interest on borrowings............. 1,600 1,026 777
- --------------------------------------------------------------
</TABLE>

RECOGNITION OF PROFITS ON ANNUITY
CONTRACTS AND INSURANCE POLICIES
Profits on fixed deferred annuities are recognized by the Company over the lives
of the contracts, using primarily the interest method. Profits represent the
excess of investment income earned from investment of contract considerations
over interest credited to contract owners and other expenses.

The retrospective deposit method is used in accounting for universal life-type
insurance. This method recognizes profits over the lives of the policies in
proportion to the estimated gross profits expected to be realized.

F-6
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Premiums on traditional life, disability income and long-term care insurance
policies are recognized as revenue when due, and related benefits and expenses
are associated with premium revenue in a manner that results in recognition of
profits over the lives of the insurance policies. This association is
accomplished by means of the provision for future policy benefits and the
deferral and subsequent amortization of policy acquisition costs.

Policyholder and contractholder charges include the monthly cost of insurance
charges, issue and administrative fees and surrender charges. These charges also
include the minimum death benefit guarantee fees received from the variable life
insurance separate accounts. Mortality and expense fees are received from the
variable annuity and variable life insurance separate accounts.

DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally sales compensation, policy
issue costs, underwriting and certain sales expenses, have been deferred on
insurance and annuity contracts. The deferred acquisition costs for most single
premium deferred annuities and installment annuities are amortized primarily
using the interest method. The costs for universal life-type insurance and
certain installment annuities are amortized as a percentage of the estimated
gross profits expected to be realized on the policies. For traditional life,
disability income and long-term care insurance policies, the costs are amortized
over an appropriate period in proportion to premium revenue.

LIABILITIES FOR FUTURE POLICY BENEFITS
Liabilities for universal life-type insurance and deferred annuities are
accumulation values.

Liabilities for fixed annuities in a benefit status are based on mortality
tables with various interest rates ranging from 5% to 9.5%, depending on year of
issue.

Liabilities for future benefits on traditional life insurance are based on the
net level premium method, using anticipated mortality, policy persistency and
interest earning rates. Anticipated mortality rates are based on established
industry mortality tables. Anticipated policy persistency rates vary by policy
form, issue age and policy duration with persistency on cash value plans
generally anticipated to be better than persistency on term insurance plans.
Anticipated interest rates range from 4% to 10%, depending on policy form, issue
year and policy duration.

Liabilities for future disability income and long-term care policy benefits
include both policy reserves and claim reserves. Policy reserves are based on
the net level premium method, using anticipated morbidity, mortality, policy
persistency and interest earning rates. Anticipated morbidity and mortality
rates are based on established industry morbidity and mortality tables.
Anticipated policy persistency rates vary by policy form, issue age, policy
duration and, for disability income policies, occupation class. Anticipated
interest rates for disability income and long-term care policy reserves are 3%
to 9.5% at policy issue and grade to ultimate rates of 5% to 7% over 4 to 10
years.

Claim reserves are calculated based on claim continuance tables and anticipated
interest earnings. Anticipated claim continuance rates are based on established
industry tables. Anticipated interest rates for claim reserves for both
disability income and long-term care range from 6% to 8%.

F-7
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINSURANCE
The maximum amount of life insurance risk retained by the Company on any one
life is $750 of life benefit plus $50 of accidental death benefits. The maximum
amount of life insurance risk retained on any joint-life combination is $1,500.
The excesses are reinsured with other life insurance companies, primarily on a
yearly renewable term basis. Long-term care policies are primarily reinsured on
a coinsurance basis. Beginning in 1998, the Company retains all disability
income and waiver of premium risk.

FEDERAL INCOME TAXES
The Company's taxable income is included in the consolidated federal income tax
return of American Express Company. The Company provides for income taxes on a
separate return basis, except that, under an agreement between AEFC and American
Express Company, tax benefit is recognized for losses to the extent they can be
used on the consolidated tax return. It is the policy of AEFC and its
subsidiaries that AEFC will reimburse subsidiaries for all tax benefits.

Included in other liabilities at December 31, 1998 and 1997 are $3,647, and
$5,026, respectively, payable to IDS Life for federal income taxes.

SEPARATE ACCOUNT BUSINESS
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity and variable life insurance contract
owners. The Company receives mortality and expense risk fees from the variable
annuity separate accounts.

The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate accounts for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which insurance charges administrative fees are deducted from
contract funds will not exceed contractual maximums.

For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.

ACCOUNTING CHANGES
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires the reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
aggregate change in stockholder's equity excluding changes in ownership
interests. For the Company, it is net income and the unrealized gains or losses
on available-for-sale securities net of the effect on deferred policy
acquisition costs, taxes and reclassification adjustment.

F-8
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use." The SOP, which is effective
January 1, 1999, requires the capitalization of certain costs incurred after the
date of adoption to develop or obtain software for internal use. Software
utilized by the Company is owned by AEFC and will be capitalized on AEFC's
financial statements. As a result, the new rule will not have a material impact
on the Company's results of operations or financial condition.

In December 1997, the AICPA issued SOP 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments," providing guidance for the
timing of recognition of liabilities related to guaranty fund assessments. The
Company will adopt the SOP on January 1, 1999. The Company has historically
carried a balance in other liabilities on the balance sheet for potential
guaranty fund assessment exposure. Adoption of the SOP will not have a material
impact on the Company's results of operations or financial condition.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2000. This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the resulting
designation. Earlier application of all of the provisions of this Statement is
encouraged, but it is permitted only as of the beginning of any fiscal quarter
that begins after issuance of the Statement. This Statement cannot be applied
retroactively. The ultimate financial impact of the new rule will be measured
based on the derivatives in place at adoption and cannot be estimated at this
time.

RECLASSIFICATIONS
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.

F-9
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

2. INVESTMENTS

Fair values of investments in fixed maturities represent quoted market prices
and estimated values when quoted prices are not available. Estimated values are
determined by established procedures involving, among other things, review of
market indices, price levels of current offerings of comparable issues, price
estimates and market data from independent brokers and financial files.

The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
U.S. Government agency
obligations................... $ 2,871 $ 159 $ -- $ 3,030
Corporate bonds and
obligations................... 417,648 29,795 474 446,969
Mortgage-backed securities.... 53,073 844 7 53,910
- -----------------------------------------------------------------------------------
$473,592 $30,798 $ 481 $ 503,909
- -----------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
State and municipal
obligations................... $ 105 $ 9 $ -- $ 114
Corporate bonds and
obligations................... 336,985 15,939 6,296 346,628
Mortgage-backed securities.... 224,235 7,614 -- 231,849
- -----------------------------------------------------------------------------------
$561,325 $23,562 $6,296 $ 578,591
- -----------------------------------------------------------------------------------
</TABLE>

The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
U.S. Government agency
obligations................... $ 3,690 $ 253 $ -- $ 3,943
Corporate bonds and
obligations................... 476,108 27,361 444 503,025
Mortgage-backed securities.... 55,853 452 294 56,011
- -----------------------------------------------------------------------------------
$535,651 $28,066 $ 738 $ 562,979
- -----------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
State and municipal
obligations................... $ 104 $ 10 $ -- $ 114
Corporate bonds and
obligations................... 281,555 14,272 1,635 294,192
Mortgage-backed securities.... 301,303 8,253 286 309,270
- -----------------------------------------------------------------------------------
$582,962 $22,535 $1,921 $ 603,576
- -----------------------------------------------------------------------------------
</TABLE>

F-10
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of investments in fixed maturities at December
31, 1998 by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
<S> <C> <C>
- ----------------------------------------------------------------
Due in one year or less................. $ 22,671 $ 22,908
Due from one to five years.............. 152,766 162,929
Due from five to ten years.............. 183,198 195,428
Due in more than ten years.............. 61,884 68,733
Mortgage-backed securities.............. 53,073 53,911
- ----------------------------------------------------------------
$473,592 $ 503,909
- ----------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
<S> <C> <C>
- ----------------------------------------------------------------
Due in one year or less................. $ 8,512 $ 8,716
Due from one to five years.............. 40,511 43,188
Due from five to ten years.............. 191,185 197,625
Due in more than ten years.............. 96,881 97,213
Mortgage-backed securities.............. 224,236 231,849
- ----------------------------------------------------------------
$561,325 $ 578,591
- ----------------------------------------------------------------
</TABLE>

During the years ended December 31, 1998, 1997 and 1996, fixed maturities
classified as held to maturity were sold with amortized cost of $16,175, $12,737
and $14,507, respectively. Net gains and losses on these sales were not
significant. The sale of these fixed maturities was due to significant
deterioration in the issuers' creditworthiness.

Fixed maturities available for sale were sold during 1998 with proceeds of
$13,180 and gross realized gains and losses of $1,159 and $440, respectively.
Fixed maturities available for sale were sold during 1997 with proceeds of
$27,055 and gross realized gains and losses of $461 and $309, respectively.
Fixed maturities available for sale were sold during 1996 with proceeds of
$15,669 and gross realized gains and losses of $28 and $1,541, respectively.

At December 31, 1998, bonds carried at $257 were on deposit with the state of
New York as required by law.

F-11
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

2. INVESTMENTS (CONTINUED)
At December 31, 1998, investments in fixed maturities comprised 85 percent of
the Company's total invested assets. These securities are rated by Moody's and
Standard & Poor's (S&P), except for securities carried at approximately $153
million which are rated by AEFC internal analysts using criteria similar to
Moody's and S&P. A summary of investments in fixed maturities, at amortized
cost, by rating on December 31 is as follows:

<TABLE>
<CAPTION>
RATING 1998 1997
<S> <C> <C>
- ----------------------------------------------------------------
Aaa/AAA................................. $ 280,669 $ 367,242
Aa/AA................................... 15,815 9,685
Aa/A.................................... 16,327 13,646
A/A..................................... 151,838 162,275
A/BBB................................... 68,640 81,463
Baa/BBB................................. 366,776 343,519
Baa/BB.................................. 39,666 21,519
Below investment grade.................. 95,186 119,264
- ----------------------------------------------------------------
$1,034,917 $1,118,613
- ----------------------------------------------------------------
</TABLE>

F-12
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

2. INVESTMENTS (CONTINUED)
At December 31, 1998, 98 percent of the securities rated Aaa/AAA are GNMA, FNMA
and FHLMC mortgage-backed securities. No holdings of any other issuer are
greater than one percent of the Company's total investments in fixed maturities.

At December 31, 1998, approximately 13 percent of the Company's investments were
mortgage loans on real estate. Summaries of mortgage loans by region of the
United States and by type of real estate are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
REGION SHEET TO PURCHASE SHEET TO PURCHASE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
West North Central............ $ 24,725 $ -- $ 27,833 $ --
East North Central............ 29,134 59 33,515 --
South Atlantic................ 34,175 598 34,182 2,750
Middle Atlantic............... 18,350 -- 24,485 --
Pacific....................... 9,706 -- 9,873 --
Mountain...................... 36,636 -- 32,864 6,417
New England................... 7,851 -- 8,624 --
East South Central............ 7,521 -- 8,698 --
West South Central............ 237 -- 252 --
- ---------------------------------------------------------------------------------------
168,335 657 180,326 9,167
Less allowance for losses..... 1,500 -- 1,500 --
- ---------------------------------------------------------------------------------------
$166,835 $657 $178,826 $9,167
- ---------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------
ON BALANCE COMMITMENTS ON BALANCE COMMITMENTS
PROPERTY TYPE SHEET TO PURCHASE SHEET TO PURCHASE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
Apartments.................... $ 59,019 $ -- $ 68,823 $ --
Department/retail stores...... 54,018 624 54,622 6,417
Office buildings.............. 23,902 -- 25,042 1,650
Industrial buildings.......... 18,590 33 17,975 1,100
Nursing/retirement............ 5,153 -- 6,035 --
Medical buildings............. 7,416 -- 7,577 --
Hotels/motels................. 237 -- 252 --
- ---------------------------------------------------------------------------------------
168,335 657 180,326 9,167
Less allowance for losses..... 1,500 -- 1,500 --
- ---------------------------------------------------------------------------------------
$166,835 $657 $178,826 $9,167
- ---------------------------------------------------------------------------------------
</TABLE>

Mortgage loan fundings are restricted by state insurance regulatory authority to
80 percent or less of the market value of the real estate at the time of
origination of the loan. The Company holds the mortgage document, which gives it
the right to take possession of the property if the borrower fails to perform
according to the terms of the agreement. The fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities. Commitments to purchase
mortgages are made in the ordinary course of business. The fair value of the
mortgage commitments is $nil.

F-13
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

2. INVESTMENTS (CONTINUED)
At December 31, 1998 and 1997, the Company's recorded investment in impaired
loans was $1,268 and $1,299, with allowances of $300 and $300, respectively.
During 1998 and 1997, the average recorded investment in impaired loans was
$1,282 and $1,312, respectively.

The Company recognized $123, $126 and $152 of interest income related to
impaired loans for the years ended December 31, 1998, 1997 and 1996,
respectively.

The following table presents changes in the allowance for investment losses
related to all loans:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------
Balance, January 1................. $1,500 $1,300 $ 445
Provision for investment losses.... -- 200 855
- -----------------------------------------------------------
Balance, December 31............... $1,500 $1,500 $1,300
- -----------------------------------------------------------
</TABLE>

Net investment income for the years ended December 31 is summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------
Interest on fixed maturities....... $ 85,164 $ 92,007 $ 95,574
Interest on mortgage loans......... 14,599 14,228 14,171
Other investment income............ 3,365 1,715 1,293
Interest on cash equivalents....... 64 91 67
- -----------------------------------------------------------------
103,192 108,041 111,105
Less investment expenses........... 2,321 1,767 1,637
- -----------------------------------------------------------------
$100,871 $106,274 $109,468
- -----------------------------------------------------------------
</TABLE>

Net realized gains (losses) on investments for the years ended December 31 is
summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------
Fixed maturities................... $2,018 $ 844 $ (572)
Mortgage loans..................... -- (200) (855)
Other investments.................. 145 (97) 3
- -------------------------------------------------------------
$2,163 $ 547 $(1,424)
- -------------------------------------------------------------
</TABLE>

Changes in net unrealized appreciation (depreciation) of investments for the
years ended December 31 are summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------
Fixed maturities available for
sale............................... $(3,347) $9,599 $(13,215)
- --------------------------------------------------------------
</TABLE>

F-14
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------
3. INCOME TAXES

The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the
Internal Revenue Code provisions applicable to life insurance companies.

The income tax expense (benefit) for the years ending December 31 consists of
the following:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------
Federal income taxes:
Current............................ $20,192 $16,371 $15,735
Deferred........................... (2,369) (960) (2,095)
- --------------------------------------------------------------
17,823 15,411 13,640
State income taxes-current......... 1,275 1,060 1,000
- --------------------------------------------------------------
Income tax expense................. $19,098 $16,471 $14,640
- --------------------------------------------------------------
</TABLE>

Increases (decreases) to the federal tax provision applicable to pretax income
based on the statutory rate are attributable to:

<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------
PROVISION RATE PROVISION RATE PROVISION RATE
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Federal income taxes
based on the statutory
rate..................... $19,406 35.0% $16,677 35.0% $14,813 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest and
dividend income.......... (660) (1.2) (569) (1.2) (458) (1.1)
State tax, net of federal
benefit.................. 829 1.5 689 1.4 650 1.5
Other, net............... (477) (0.9) (326) (0.6) (365) (0.8)
- -----------------------------------------------------------------------------------------------
Federal income taxes..... $19,098 34.4% $16,471 34.6% $14,640 34.6%
- -----------------------------------------------------------------------------------------------
</TABLE>

A portion of life insurance company income earned prior to 1984 was not subject
to current taxation but was accumulated, for tax purposes, in a "policyholders'
surplus account." At December 31, 1998, the Company had a policyholders' surplus
account balance of $798. The policyholders' surplus account is only taxable if
dividends to the stockholder exceed the stockholder's surplus account or if the
Company is liquidated. Deferred income taxes of $279 have not been established
because no distributions of such amounts are contemplated.

Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:

<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
- ----------------------------------------------------------
Deferred income tax assets:
Policy reserves......................... $29,318 $28,922
Other................................... 6,502 5,467
- ----------------------------------------------------------
Total deferred income tax assets........ 35,820 34,389
- ----------------------------------------------------------
Deferred income tax liabilities:
Deferred policy acquisition costs....... 36,673 36,594
Investments............................. 7,059 9,240
- ----------------------------------------------------------
Total deferred income tax liabilities... 43,732 45,834
- ----------------------------------------------------------
Net deferred income tax liabilities..... $ 7,912 $11,445
- ----------------------------------------------------------
</TABLE>

F-15
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

3. INCOME TAXES (CONTINUED)
The Company is required to establish a valuation allowance for any portion of
the deferred income tax assets that management believes will not be realized. In
the opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred tax assets and, therefore, no such valuation
allowance has been established.

- --------------------------------------------------------------------------------
4. STOCKHOLDER'S EQUITY

Retained earnings available for distribution as dividends to the parent are
limited to the Company's surplus as determined in accordance with accounting
practices prescribed by the New York Department of Insurance. All dividend
distributions must be approved by the New York Department of Insurance.
Statutory unassigned surplus aggregated $132,702 and $115,828 as of December 31,
1998 and 1997, respectively (see Note 3 with respect to the income tax effect of
certain distributions and Note 11 for a reconciliation of net income and
stockholder's equity per the accompanying financial statements to statutory net
income and surplus).

- --------------------------------------------------------------------------------
5. BENEFIT PLANS

The Company participates in the American Express Company Retirement Plan which
covers all permanent employees age 21 and over who have met certain employment
requirements. Employer contributions to the plan are based on participants' age,
years of service and total compensation for the year. Funding of retirement
costs for this plan complies with the applicable minimum funding requirements
specified by ERISA. The Company's share of the total net periodic pension cost
was $37, $39 and $34 in 1998, 1997 and 1996, respectively.

The Company has a "Sales Benefit Plan" which is an unfunded, noncontributory
retirement plan for all eligible financial advisors. Total plan costs for 1998,
1997 and 1996, which are calculated on the basis of commission earnings of the
individual financial advisors, were $1,480, $1,965 and $1,474, respectively.
Such costs are included in deferred policy acquisition costs.

The Company also participates in defined contribution pension plans of American
Express Company which cover all employees who have met certain employment
requirements. Company contributions to the plans are a percent of either each
employee's eligible compensation or basic contributions. Costs of these plans
charged to operations in 1998, 1997 and 1996 were $252, $312 and $248,
respectively.

The Company participates in defined benefit health care plans of AEFC that
provide health care and life insurance benefits to retired employees and retired
financial advisors. The plans include participant contributions and
service-related eligibility requirements. Upon retirement, such employees are
considered to have been employees of AEFC. Costs of these plans charged to
operations in 1998, 1997 and 1996 were $nil.

F-16
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

6. INCENTIVE PLAN AND RELATED PARTY OPERATING EXPENSES

The Company maintains a "Persistency Payment Plan." Under the terms of this
plan, financial advisors earn additional compensation based on the volume and
persistency of insurance sales. The total costs for the plan for 1998, 1997 and
1996 were $140, $1,490 and $1,424, respectively. Such costs are included in
deferred policy acquisition costs.

Charges by IDS Life and AEFC for the use of joint facilities, marketing services
and other services aggregated $9,403, $11,589 and $12,389 for 1998, 1997 and
1996, respectively. Certain of these costs are included in deferred policy
acquisition costs.

- --------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES

A number of lawsuits have been filed against life and health insurers in
jurisdictions in which the Company conducts business involving insurers' sales
practices, alleged agent misconduct, failure to properly supervise agents, and
other matters. The Company, along with AEFC and its insurance subsidiaries, has
been named as a defendant in one of these types of actions.

The plaintiffs purport to represent a class consisting of all persons who
purchased policies or contracts from IDS Life and its subsidiaries. The
complaint puts at issue various alleged sales practices and misrepresentations,
alleged breaches of fiduciary duties and alleged violations of consumer fraud
statutes. IDS Life and its subsidiaries believe they have meritorious defenses
to the claims raised in this lawsuit.

The outcome of any litigation cannot be predicted with certainty. In the opinion
of management, however, the ultimate resolution of this lawsuit should not have
a material adverse effect on the Company's financial position.

At December 31, 1998 and 1997, traditional life insurance and universal
life-type insurance in force aggregated $4,941,727 and $4,513,251, respectively,
of which $248,280 and $221,798 were reinsured at the respective year ends.

In addition, the Company has a stop loss reinsurance agreement with IDS Life
covering ordinary life benefits. IDS Life agrees to pay all death benefits
incurred each year which exceed 125 percent of normal claims, where normal
claims are defined in the agreement as .095 percent of the mean retained life
insurance in force. Premiums ceded to IDS Life amounted to $74, $115 and $98 for
the years ended December 31, 1998, 1997 and 1996, respectively. Claim recoveries
under the terms of this reinsurance agreement were $nil, $963 and $861 in 1998,
1997 and 1996, respectively.

Premiums ceded to reinsurers other than IDS Life amounted to $2,178, $1,583 and
$747 for the years ended December 31, 1998, 1997 and 1996, respectively. Claim
recoveries from reinsurers other than IDS Life amounted to $228, $1,366 and $66
for the years ended December 31, 1998, 1997 and 1996, respectively.

Reinsurance contracts do not relieve the Company from its primary obligations to
policyholders.

The Company has an agreement to assume a block of extended term life insurance
business. The amount of insurance in force related to this agreement was
$267,806 and $303,263 at December 31, 1998 and 1997, respectively. The
accompanying statement of income includes premiums of $nil for the years ended
December 31, 1998, 1997 and 1996, and decreases in liabilities for future policy
benefits of $1,742, $1,889 and $2,010 related to this agreement for the years
ended December 31, 1998, 1997 and 1996, respectively.

F-17
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

8. LINES OF CREDIT

The Company has an available line of credit with AEFC aggregating $25,000. The
interest rate for the line of credit is AEFC's cost of funds, ranging from 20 to
45 basis points over an established index. There were no borrowings outstanding
under this agreement at December 31, 1998 or 1997.

- --------------------------------------------------------------------------------
9. DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into transactions involving derivative financial instruments
to manage its exposure to interest rate risk, including hedging specific
transactions. The Company does not hold derivative instruments for trading
purposes. The Company manages risks associated with these instruments as
described below.

Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is not
impacted by market risk related to derivatives held for non-trading purposes
beyond that inherent in cash market transactions. Derivatives are largely used
to manage risk and, therefore, the cash flow and income effects of the
derivatives are inverse to the effects of the underlying transactions.

Credit risk is the possibility that the counterparty will not fulfill the terms
of the contract. The Company monitors credit risk related to derivative
financial instruments through established approval procedures, including setting
concentration limits by counterparty and industry, and requiring collateral,
where appropriate. A vast majority of the Company's counterparties are rated A
or better by Moody's and Standard & Poor's.

Credit risk related to interest rate caps is measured by replacement cost of the
contracts. The replacement cost represents the fair value of the instruments.

The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over the
life of the agreement. Notional amounts are not recorded on the balance sheet.
Notional amounts far exceed the related credit exposure.

The Company's holdings of derivative financial instruments are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 NOTIONAL CARRYING FAIR TOTAL CREDIT
ASSETS: AMOUNT AMOUNT VALUE EXPOSURE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Assets:
Interest rate caps............ $200,000 $566 $ 2 $ 2
- ----------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997 NOTIONAL CARRYING FAIR TOTAL CREDIT
ASSETS: AMOUNT AMOUNT VALUE EXPOSURE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Assets:
Interest rate caps............ $200,000 $970 $62 $62
- ----------------------------------------------------------------------------
</TABLE>

The fair values of derivative financial instruments are based on market values,
dealer quotes or pricing models. The interest rate caps expire in the year 2000.

Interest rate caps are used to manage the Company's exposure to interest rate
risk. These instruments are used primarily to protect the margin between
interest rates earned on investments and the interest rates credited to related
annuity contract holders.

F-18
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
- --------------------------------------------------------------------------------

10. FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company discloses fair value information for most on- and off-balance sheet
financial instruments for which it is practicable to estimate that value. Fair
values of life insurance obligations, receivables and all non-financial
instruments, such as deferred acquisition costs, are excluded. Off-balance sheet
intangible assets, such as the value of the field force, are also excluded.
Management believes the value of excluded assets and liabilities is significant.
The fair value of the Company, therefore, cannot be estimated by aggregating the
amounts presented.

<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
FINANCIAL ASSETS:
Investments:
Fixed maturities (Note 2):
Held to maturity.............. $ 473,592 $ 503,909 $ 535,651 $ 562,979
Available for sale............ 578,591 578,591 603,576 603,576
Mortgage loans on real estate
(Note 2)...................... 166,835 178,559 178,826 187,992
Other:
Derivative financial
instruments (Note 9).......... 566 2 970 62
Separate accounts assets (Note
1)............................ 1,491,679 1,491,679 1,236,759 1,236,759

FINANCIAL LIABILITIES
Future policy benefits for
fixed annuities............... 788,780 765,430 880,809 852,391
Separate account
liabilities................... 1,355,430 1,302,422 1,136,408 1,086,565
- ------------------------------------------------------------------------------
</TABLE>

At December 31, 1998 and 1997, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $81,358 and $78,853, respectively, and policy loans of $5,369 and
$4,821, respectively. The fair value of these benefits is based on the status of
the annuities at December 31, 1998 and 1997. The fair value of deferred
annuities is estimated as the carrying amount less any surrender charges and
related loans. The fair value for annuities in non-life contingent payout status
is estimated as the present value of projected benefit payments at rates
appropriate for contracts issued in 1998 and 1997.

At December 31, 1998 and 1997, the fair value of liabilities related to separate
accounts is estimated as the carrying amount less applicable surrender charges
and less variable insurance contracts carried at $136,249 and $100,351,
respectively.

F-19
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

NOTES TO FINANCIAL STATEMENTS ($ THOUSANDS) (CONTINUED)
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11. STATUTORY INSURANCE ACCOUNTING PRACTICES

Reconciliations of net income for the years ended December 31 and stockholder's
equity at December 31, as shown in the accompanying financial statements, to
that determined using statutory accounting practices are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------
Net income, per accompanying
financial statements............... $ 36,348 $ 31,178 $ 27,684
Deferred policy acquisition
costs.............................. (2,841) (7,432) (9,087)
Adjustments of future policy
benefit liabilities................ (6,199) (4,928) (9,683)
Deferred income tax benefit........ (2,369) (960) (2,095)
Provision for losses on
investments........................ 862 296 877
IMR gain/loss transfer and
amortization....................... (1,451) (119) 1,010
Adjustment to separate account
reserves........................... 2,767 10,267 8,863
Other, net......................... (350) 430 116
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Net income, on basis of statutory
accounting practices............... $ 26,767 $ 28,732 $ 17,685
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</TABLE>

<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------
Stockholder's equity, per
accompanying financial
statements......................... $ 279,466 $ 257,279 $ 229,863
Deferred policy acquisition
costs.............................. (129,477) (126,614) (119,183)
Adjustments of future policy
benefit liabilities................ 4,697 9,452 13,458
Deferred income taxes.............. 7,912 11,445 9,046
Asset valuation reserve............ (15,516) (16,698) (19,446)
Adjustments of separate account
liabilities........................ 56,223 53,456 43,189
Adjustments of investments to
amortized cost..................... (17,266) (20,613) (11,016)
Premiums due, deferred and
advance............................ 1,381 1,237 1,149
Deferred revenue liability......... 2,482 1,941 1,342
Allowance for losses............... 1,500 1,645 1,349
Non-admitted assets................ (450) (552) (634)
Interest maintenance reserve....... (3,001) (1,551) (1,432)
Other, net......................... (2,915) (1,463) (281)
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Stockholder's equity, on basis of
statutory accounting practices..... $ 185,036 $ 168,963 $ 147,404
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</TABLE>

F-20
<PAGE>
IDS LIFE INSURANCE COMPANY OF NEW YORK
(A WHOLLY OWNED SUBSIDIARY OF IDS LIFE INSURANCE COMPANY)

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REPORT OF INDEPENDENT AUDITORS

The Board of Directors
IDS Life Insurance Company of New York

We have audited the accompanying balance sheets of IDS Life Insurance Company of
New York (a wholly owned subsidiary of IDS Life Insurance Company) as of
December 31, 1998 and 1997, and the related statements of income, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IDS Life Insurance Company of
New York at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.

Ernst & Young LLP
Minneapolis, Minnesota
February 4, 1999

F-21
<PAGE>
SMITH BARNEY LIFEVEST-SM-
certain investments are sponsored by:
Smith Barney and subsidiaries

SMITH BARNEY LIFEVEST-SM-
is underwritten, issued, managed and serviced by:
IDS Life Insurance Company of New York

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S-6222 M (4/99)